Regulation Still Top-of-Mind Risk

"The cost and influence of regulation on business models remain high in many industries," says a new report.
Matthew HellerFebruary 10, 2015
Regulation Still Top-of-Mind Risk

Regulatory changes and heightened regulatory scrutiny continue to be the number one risk on the minds of company executives and directors in 2015, followed by economic conditions and cyber threats, according to a new survey.

Regulatory risks topped the annual risk rankings of global consulting firm Protiviti and North Carolina State University’s ERM Initiative for the third year in a row. They rated 6.0 on a scale of one to 10, compared with a 6.4 rating last year.

“While the level of concern about [political] risk is not as high as the prior year … companies continue to have significant anxiety that regulatory challenges may affect their strategic direction,” the survey report says, noting that even marginally incremental regulatory change “can add tremendous cost” to an organization.

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“That this risk remains top-of-mind suggests the cost of regulation and the influence of regulation on business models remain high in many industries,” it adds.

Also looming large are economic conditions, which took the number two spot in the survey amid concerns over, among other things, volatility in oil and gas prices, the impact of economic sanctions on Russia, currency volatility, and a possible change in U.S. economic policy resulting from the Republican majority in the Senate.

Cyber threats moved into the top five risks, climbing from number six to number three and coming as little surprise in the wake of recent security breaches at major retailers, global banks, and other high-profile companies. “Most executives recognize the need for ‘cyber resiliency,’ realizing it is not a matter of if a cyber risk event might occur, but more a matter of when it will occur,” the survey report comments.

Among five new risks added to the 2015 survey, two made the top 10 list for the first time. They included the risks that an organization’s culture may not encourage timely identification of risk issues and that companies won’t be able to sustain customer loyalty and retention as customer preferences and demographics evolve.

“The rapid pace of change and disruptive innovations are leading to drastic changes in the marketplace,” the survey report says.

Featured image: Thinkstock

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